Iain Duncan-Smith’s overhaul of the benefits system to “make work pay” could
end up encouraging some parents to work only a few hours a week, academics
claim.

The Universal Credit, due to be introduced next year, was designed to simplify the benefits system and create incentives for people to work rather than live off state handouts.

Mr Duncan Smith has insisted that, even after people are earning enough to start paying taxes and have state support withdrawn, they will always be better off working an extra hour than not doing so.

But according to experts at the Centre for Research in Social Policy at Loughborough University, the system could actively discourage many single parents from working longer hours, when childcare and housing costs are taken into account.

In more expensive areas in London on the Home Counties, where childcare cost are much higher than average, working parents could even be dragged below the poverty line by taking on more hours, according to the study commissioned by the charity Gingerbread.

Fiona Weir, the charity’s chief executive, said: “Through universal credit the Government has the opportunity to make work pay and offer real financial incentives for families on low wages to work more hours – which many want to do.

“However, we have discovered that for many single parents, working longer hours won’t necessarily pay … unless the Government gets it right now, the sums just won’t add up for too many single parents.”

The study found that parents taking a job paying the national average wage of £11.15 an hour would see the income rising sharply for the first five to six hours but after that more slowly.

Those receiving the minimum wage of £6.19 an hour would see strong growth in their income compared with living on benefits up until they were working 10 hours a week but much less significantly after that.

In expensive areas, any gains from working would eventually be wiped out by the cost of childcare and housing the more hours they took on, the report authored by Donald Hirsch, the centre’s director.

For example, a lone parent from London with one child earning average wages would be better off overall working up to 28 hours a week than living on benefits.

But as they moved towards full time work, paying higher taxes and seeing their state support withdrawn, their overall income would then begin to drop off,

By the time they were working 36 hours a week they would slip below the official poverty line, although those in other parts of the country would fare better.

“The price of childcare makes a crucial difference to how much a family can improve its living standard through work, “ the study says.

“This applies in particular to decisions about whether to work part time or full time.

“At London childcare prices, people on low wages may actually be worse off working an extra hour if that requires an additional hour of childcare.

It goes on: “For people on low wages, this reinforces the disincentive to work full time. It traps some families with high childcare costs below the poverty line, and many more on incomes which don’t allow them to reach acceptable minimum living standards.

“It encourages them to accept the income that they can achieve by working few hours and using little or no paid childcare, rather than increasing their hours and progressing in work accordingly.”

A spokesman for the DWP said: "Universal Credit will make millions of people better off, including 700,000 lone parents. "An extra £300 million will be spent on childcare support, so that more families will be able to take up jobs and we're changing the rules so that people can access childcare support from their first hour in work – a move that will clearly benefit lone parents.

“We know rising childcare costs are a concern, and the Childcare Commission is currently tasked with finding solutions to this problem."